Monday 02/12/19

  1. In MACRO & OIL NEWS, Germany’s coalition government gets a shock and Saudis are likely to pump up the oil price ahead of Saudi Aramco’s IPO
  2. In TECH NEWS, Huawei makes phones without US parts, big tech companies take big chunk of ad spend, Chinese tech companies target growth in India and Ocado signs up Japan’s Aeon
  3. In INDIVIDUAL COMPANY NEWS, there are big expectations for Cyber Monday and Las Iguanas bucks the casual dining gloom
  4. In OTHER NEWS, I bring you the chair challenge and the magic hands trick…



So Germany gets a jolt and it looks like there will be upward pressure on the oil price…

Germany’s ruling coalition shaken by new SPD election (Financial Times, Tobias Buck and Guy Chazan) highlights potential upheaval in Europe’s biggest economy as the Social Democatic party (aka SPD) elected two new left wing leaders, Norbert Walter-Borjans and Saskia Esken, on the weekend. They are expected to continue their efforts to renegotiate the fragile coalition arrangement with Angela Merkel’s Christian Democrats (aka CDU) and call for more spending on infrastructure, more action on climate change and a stimulus spending package to drag Germany out of its current rut. The Christian Democrats reiterated their support of the current coalition agreement. * SO WHAT? * The SPD hasn’t said categorically that it will leave the coalition, but if it did there would be a few options. One is that there could be a minority government where the CDU go it alone without the SPD (which some in the CDU would quite like as they won’t have to appease their partners any more). A second option could be that the CDU could try to form a coalition with the Greens and liberal Free Democrats. Alternatively, chancellor Merkel could call another election, but I’m presuming that this would be the

least preferred option as it could leave the country in a precarious position at a difficult time. Still, a changing of the guard in the SPD is likely to jangle the nerves of many who are desperate to see the engine of Europe back firing on all cylinders.

Saudi Arabia aims to buoy oil price before Aramco stock market debut (The Guardian, Jillian Ambrose) highlights the likelihood of Saudi Arabia using its position as the head of the Opec oil cartel to encourage others at this week’s OPEC meeting to support a stronger oil price by sticking to tight production limits. It may even cut its own production in order to keep the price above $65 a barrel to bolster support for the upcoming flotation of Saudi Aramco. * SO WHAT? * This IPO is just looking more like a joke by the day. Valuations have been shredded, Saudi Arabia is using all of its might to put pressure on companies and rich individuals to buy the shares – so virtually 90% of bids from institutional investors are from Saudia Arabia! Yes, a higher oil price will justify a higher valuation for Saudi Aramco on its stock market debut on the Tadawul but if it takes this much pressure to get the thing off the ground you do wonder how successful it will be in the after-market and further down the road. Given how many favours the kingdom has been calling in to get this thing off the ground, you would have thought that it will cost Saudi Aramco (and the state) a lot to keep the party going – and it will need to if it ever wants to try this sort of thing again.



Huawei makes phones without US bits, ad spend is dominated by big tech, Chinese companies aim for Indian growth and Japan’s Aeon signs up with Ocado…

Huawei manages to make smartphones without American chips (Wall Street Journal, Asa Fitch and Dan Strumpf) sounds quite ominous for American tech companies as Huawei’s latest flagship phone, the Mate 30, contained zero American parts according to recent analysis where the phone was taken apart. Trump banned chip shipments from US-based companies to Huawei in May amid security concerns and general tetchiness in the US-China trade talks, but it seems that the Chinese tech giant has used the time to up its game. Although Huawei hasn’t stopped using US chips completely (the ban affects chips made in the US but a lot of companies make them outside the US these days) it has been cutting down on US suppliers and substituting US chips with others in their latest phones (e.g. Cirrus Logic chips were swapped for those from NXP, the Dutch chip maker, and Huawei’s in-house HiSilicon’s power amplifiers were used instead of those from Qorvo or Skyworks). * SO WHAT? * Although Huawei’s preference is to use US suppliers, it had been gearing up for a ban for quite some time in the lead-up to when it actually happened. The speed with which Huawei has been able to react will probably be quite surprising to some and should hurt US suppliers’ future bargaining power. There was always a risk that Huawei would use the ban to accelerate its plans for “US independence” – and here is the evidence that it is indeed doing so.

Eight tech giants swallow 5pc of world’s advertising spending (Daily Telegraph, Matthew Field) just highlights how Facebook, Amazon, Netflix, Alphabet (Google’s parent), eBay, Liberty Media, Uber and have continued to grow their domination of global advertising spend to the extent that they now account for 5% of all ad spending on a global basis. According to media analyst firm GroupM, pure internet ad spend is expected to grow healthily at the expense of advertising in TV and magazines.

Chinese tech start-ups pursue growth in Indian market (Financial Times, Ryan McMorrow and Henny Sender) takes a look at Chinese start-ups such as Club Factory (a fashion and lifestyle marketplace that undercuts domestic rivals on price), Newsdog (an AI-powered news aggregator) and Mayfair (a fast fashion start-up which goes under the band name Urbanic) who have all set up in India, as well as their rather larger cousins ByteDance, Tencent and Alibaba. All these companies are taking home-grown ideas and spreading them into a sizeable new market powered by the explosion in popularity of cheap smartphones. This massive inflow of Chinese goods and companies has resulted in a backlash of sorts as the Indian government has stopped some imports following allegations of tax-dodging and an influx of counterfeit goods, but this has not dented their desire to expand in the country. As Aaron Li, co-founder of Club Factory, put it, “It’s an early market. A lot of [Indian] infrastructure is not as good as in China or the US. But they are at a tipping point…If there is another Alibaba or Amazon, it should be in India”. * SO WHAT? * Given their maturing domestic market and ongoing problems in developed ones, I think it makes perfect sense for Chinese companies to look to India for their next phase of growth. I do suspect, though, that every effort will be made by Indian authorities to ensure that LOCAL companies take leading positions and don’t get swamped by the Chinese influx, attractive though their cash, jobs and expertise may be.

It’s kind of last week’s news really but Ocado to build robot-powered warehouses in Japan (Financial Times, Jonathan Eley, Adam Samson and Kana Inagaki) heralds the latest deal signed with Ocado by a foreign supermarket operator to licence its smart platform system of automated warehouses and software. Japan’s Aeon has signed a deal that follows similar ones with America’s Kroger and France’s Casino. Financial details of the partnership were not revealed. * SO WHAT? * Given that the usual arrangement involves the client (in this case, Aeon) buying the warehouse shell and delivery vehicles and Ocado financing the robotics and software rollout, you would have thought that this latest deal will delay the day when Ocado becomes profitable – but the nature of such deals would suggest that there are real benefits that will be worth waiting for in terms of future profits.



Cyber Monday expectations increase and Las Iguanas seems to be a casual dining success story…

In Cyber Monday tipped to break US ecommerce sales record (Financial Times, Alistair Gray) we see that projections would suggest that Cyber Monday is set to be the most successful day ever for US e-commerce sales as footfall at traditional shops fell on Black Friday and Thanksgiving, according to the latest data from ShopperTrak and RetailNext. On the other hand, Adobe Analytics’ findings suggest new online sales records with $7.4bn spent on Black Friday and $9.4bn expected on Cyber Monday – but they still fall way short of Alibaba’s $38bn in sales on Singles’ Day! Another worrying feature for physical stores is that shoppers are showing an increasing trend of buying more expensive items online – the average online order value on Black Friday rose by almost 6% versus last year. * SO WHAT? * Again, this

probably just provides evidence that backs up what we already suspected. I think that the need for shops to provide a better in-store experience is still growing – although there are exceptions to the rule, like Primark, who avoid online sales and are doing so well that they are continuing with their international expansion plans!

Talking of exceptions to the rule, Las Iguanas hungry for more expansion (The Times, Dominic Walsh) highlights the success of Las Iguanas, the Latin American-themed restaurant chain owned by Casual Dining Group (CDG), to the extent that it announced plans to open five new sites per year. CDG is one of Britain’s biggest mid-market restaurant chain operators with other brands in its stable such as Bella Italia and Cafe Rouge. * SO WHAT? * It’s good to see that there are some successes in this battered industry! It sounds like Las Iguanas is to CDG what Wagamama is to rival The Restaurant Group in that their respective performances are making up for shortfalls elsewhere in their restaurant portfolios. It’s always nice to see that there is still some life left in mid-market restaurants!



And finally, in other news…

I thought I’d leave you today with two things: Everyone’s trying the chair challenge – which women can do but men can’t (The Mirror, Luke Matthews and then the quite frankly freaky Woman’s ‘trippy’ optical illusion video leaves people completely bemused (The Mirror, Courtney Pochin Wha-??? How did she do that??

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)